GAAP revenue for Q3'14 was $276 million, compared to $262 million in the third quarter of 2013 (Q3'13), representing 6% year-over-year growth. GAAP net income for Q3'14 was $11.5 million, or $0.07 per diluted share, compared to GAAP net income of $3.8 million, or $0.02 per diluted share, in Q3'13.

(Dollars in millions, except EPS)

Q3'14

Q2'14

Q3'13

Change Q/Q

Change Y/Y

Revenue

$276

$264

$262

5%

6%

Net Income

$11.5

$6.8

$3.8

$4.7

$7.7

Diluted EPS

$0.07

$0.04

$0.02

$0.03

$0.05

Q3'14 Non-GAAP Financials

Non-GAAP revenue for Q3'14 was $277 million, an increase of 4% compared to $265 million in Q3'13. Non-GAAP net income for Q3'14 was $48.7 million compared to non-GAAP net income of $43.3 million in Q3'13. Non-GAAP earnings were $0.30 per diluted share for Q3'14 compared with $0.26 per diluted share in Q3'13, representing a 15% increase year-over-year.

(Dollars in millions, except EPS)

Q3'14

Q2'14

Q3'13

Change Q/Q

Change Y/Y

Revenue

$277

$264

$265

5%

4%

Net Income

$48.7

$42.6

$43.3

$6.1

$5.4

Diluted EPS

$0.30

$0.26

$0.26

$0.04

$0.04

"Our third quarter financial results were in-line with our revised guidance. While we are not satisfied with our top line performance, we are pleased to see steady growth in our SteelFusion and SteelCentral businesses," said Jerry M. Kennelly, chairman and CEO. "Our ongoing focus to gain increased operating leverage is evident in our Q3 results, delivering earnings per share in-line with our expectations. We've started to execute our previously announced restructuring plans to drive further operational improvements and remain committed to delivering profitable growth and enhancing shareholder value," continued Kennelly.

Named an inaugural member of the Microsoft Azure Certified Program and announced Riverbed SteelHead CX for IaaS (Infrastructure-as-a-Service) which can accelerate data and applications hosted by Azure up to 33x faster, while using up to 97% less bandwidth.

Deployed by Canadian based mining company, Alamos Gold, to centralize server, storage, and network infrastructure into a single branch appliance, improving data protection and increasing business performance.

Deployed by WAMGROUP, industrial equipment manufacturer and longstanding SteelHead customer, to strengthen its disaster-recovery capabilities and provide resilient IT support for branch offices located in a seismic zone.

Paul Mountford, Senior Vice President and Chief Sales Officer; seasoned industry veteran with 30 years of leadership experience in the technology sector, including 16 years with Cisco

Q4'14 Outlook

The Company provides the following financial guidance for the fourth quarter of fiscal year 2014, which reflects the partial quarter impact of the planned Q4 restructuring:

Non-GAAP revenues are expected to be in the range of $285 million and $290 million

Non-GAAP earnings per share are expected to be in the range of $0.31 to $0.33 per share

Riverbed will host a conference call today, October 23, 2014 at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its third quarter 2014 results and outlook for the fourth quarter of 2014. The call will be broadcast live over the Internet at http://www.riverbed.com/investors and a replay of the webcast will also be available for 12 months.

Use of Non-GAAP Financial Information

To supplement our financial results presented in accordance with Generally Accepted Accounting Principles (GAAP), this press release and the accompanying tables contain certain non-GAAP financial measures, including non-GAAP revenue, non-GAAP net income and non-GAAP net income per share, which we believe are helpful in understanding our past financial performance and future results. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, "GAAP to Non-GAAP Reconciliations." Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses our supplemental non-GAAP financial measures internally to understand and manage our business and forecast future periods; as such, we believe it is useful for investors to understand the effects of these items on our total operating expenses. Our non-GAAP financial measures include adjustments based on the following items, as well as the related income tax effects, adjustments related to our tax valuation allowance and the interim tax cost of the one-time transfer of intellectual property rights between Riverbed legal entities:

Support and services deferred revenue: Business combination accounting rules require us to account for the fair value of support and service contracts assumed in connection with our acquisitions. The book value of the acquisition deferred support and services revenue related to OPNET was reduced by $19 million in the adjustment to fair value. Because these are typically one to five year contracts, our GAAP revenues for the periods subsequent to the acquisition of a business do not reflect the full amount of service revenues on assumed support contracts that would have otherwise been recorded by the acquired entity. The non-GAAP adjustment is intended to reflect the full amount of such revenues. We believe this adjustment is useful to investors as a measure of the ongoing performance of our business because we have historically experienced high renewal rates on support contracts, although we cannot be certain that customers will renew these contracts.

Inventory and cost of product revenue: Business combination accounting rules require us to account for the fair value of inventory acquired in connection with our acquisitions. The fair value of inventory is estimated as the selling price minus the estimated cost to sell. In the period subsequent to the acquisition, the cost of product revenue includes the higher fair value of the acquired inventory that would not have otherwise been recorded by the acquired entity.

Stock-based compensation expenses: We have excluded the effect of stock-based compensation and related payroll tax expenses from our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.

Amortization of intangible assets: We have excluded the effect of amortization of intangible assets from our non-GAAP net income. Amortization of intangible assets is a non-cash expense, and it is not part of our core operations. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future revenues as well.

Other expenses are those which we would not otherwise have incurred in the periods presented as a part of our ongoing expenses. In the periods presented, Other expenses included:

Operating lease not in service - We entered into an operating lease on a new corporate headquarters in San Francisco. The lease accounting rules require that rent expense begin on a straight line basis starting in the period that we have the right to access the new facility. We gained the right to access the facility in November 2013 to begin constructing our leasehold improvements. We occupied the new facility in the second quarter of 2014. We believe that the duplicate rent of the new facility during the construction period is not representative of the ongoing operating costs of the company.

Non-routine corporate governance and shareholder matters - Beginning in the fourth quarter of 2013, we began incurring professional service fees related to non-routine corporate governance and shareholder matters. We believe these fees are not representative of the ongoing operating costs of the company.

Forward Looking Statements

This press release contains forward-looking statements, including statements relating to revenue and earnings growth, including guidance for the fourth quarter of fiscal 2014, restructuring plans to drive further operational improvements, and other forward opportunities. These forward-looking statements involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include our ability to react to trends and challenges in our business and the markets in which we operate; our ability to anticipate market needs or develop new or enhanced products to meet those needs; customer adoption rate of our products and our Application Performance Platform; our ability to establish and maintain successful relationships with our distribution partners; our ability to compete in our industry; fluctuations in demand, sales cycles and prices for our products and services; our ability to timely and effectively implement our restructuring plans; shortages or price fluctuations in our supply chain; our ability to protect our intellectual property rights; general political, economic and market conditions and events; and other risks and uncertainties described more fully in our documents filed with or furnished to the Securities and Exchange Commission. More information about these and other risks that may impact Riverbed's business are set forth in our Form 10-K filed with the SEC for the period ended December 31, 2013, and our subsequent quarterly reports filed with the SEC. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements. Any future product, feature or related specification that may be referenced in this release are for information purposes only and are not commitments to deliver any technology or enhancement. Riverbed reserves the right to modify future product plans at any time.

Riverbed Technology

GAAP Condensed Consolidated Statements of Operations

In thousands, except per share amounts

Unaudited

Three months ended

Nine months ended

September 30,

September 30,

2014

2013

2014

2013

Revenue:

Product

$

153,383

$

153,167

$

448,458

$

444,690

Support and services

122,991

108,556

357,358

313,082

Total revenue

276,374

261,723

805,816

757,772

Cost of revenue:

Cost of product

36,945

41,772

111,614

123,135

Cost of support and services

33,393

29,085

97,657

87,020

Total cost of revenue

70,338

70,857

209,271

210,155

Gross profit

206,036

190,866

596,545

547,617

Operating expenses:

Sales and marketing

113,100

116,257

338,535

345,351

Research and development

53,354

49,461

155,299

149,440

General and administrative

18,698

17,729

58,102

55,164

Acquisition-related costs

1,866

4,882

4,806

16,085

Total operating expenses

187,018

188,329

556,742

566,040

Operating profit (loss)

19,018

2,537

39,803

(18,423

)

Interest and other expense, net

(2,773

)

(5,063

)

(8,199

)

(17,336

)

Income (loss) before provision for income taxes

16,245

(2,526

)

31,604

(35,759

)

Provision for (benefit from) income taxes

4,761

(6,344

)

10,067

(14,946

)

Net income (loss)

$

11,484

$

3,818

$

21,537

$

(20,813

)

Net income (loss) per share, basic

$

0.07

$

0.02

$

0.14

$

(0.13

)

Net income (loss) per share, diluted

$

0.07

$

0.02

$

0.13

$

(0.13

)

Shares used in computing basic net income (loss) per share

157,575

162,929

159,448

163,430

Shares used in computing diluted net income (loss) per share

162,323

167,692

164,096

163,430

Riverbed Technology

Condensed Consolidated Balance Sheets

In thousands

Unaudited

September 30,

December 31,

2014

2013

ASSETS

Current assets:

Cash and cash equivalents

$

207,782

$

208,022

Short-term investments

189,938

251,339

Trade receivables, net

114,411

93,836

Inventory

17,517

25,025

Deferred tax assets

17,807

7,222

Prepaid expenses and other current assets

58,793

49,016

Total current assets

606,248

634,460

Long-term investments

78,948

72,675

Fixed assets, net

74,133

57,810

Goodwill

704,305

704,305

Intangible assets, net

340,007

404,467

Other assets

20,928

23,881

Total assets

$

1,824,569

$

1,897,598

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

41,611

$

45,518

Accrued compensation and related benefits

47,813

51,988

Other accrued liabilities

56,214

36,520

Current maturities of long-term borrowings

15,000

15,000

Deferred revenue

228,038

217,131

Total current liabilities

388,676

366,157

Deferred revenue, non-current

84,041

95,344

Borrowings, non-current, net of current maturities

498,750

510,000

Deferred tax liability, non-current

38,939

48,548

Other long-term liabilities

47,896

48,910

Total long-term liabilities

669,626

702,802

Stockholders' equity:

Common stock

622,920

702,928

Retained earnings

146,832

125,295

Accumulated other comprehensive income (loss)

(3,485

)

416

Total stockholders' equity

766,267

828,639

Total liabilities and stockholders' equity

$

1,824,569

$

1,897,598

Riverbed Technology

Condensed Consolidated Statements of Cash Flows

In thousands

Unaudited

Nine months ended

September 30,

9/30/2014

9/30/2013

Operating activities:

Net income (loss)

$

21,537

$

(20,813

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

(3) The intangible assets recorded at fair value as a result of our acquisition are amortized over the estimated useful life of the respective asset.

(4) The inventory fair value adjustment recorded pursuant to our acquisition is excluded from our non-GAAP operating expenses as this cost would not have otherwise occurred in the period presented.

(5) We incurred expenses in connection with our acquisitions, which would not have otherwise occurred in the period presented as part of our operating expenses; therefore, these costs, including transaction costs, integration costs, employee retention and severance costs, restructuring costs, write-down of certain acquired in-process research and development intangibles, and revaluation of the fair value of contingent consideration, are excluded from our non-GAAP operating expenses.

(6) Business combination accounting rules require us to account for the fair value of deferred revenue assumed in connection with an acquisition. The non-GAAP adjustment is intended to reflect the full amount of support and service revenue that would have otherwise been recorded by the acquired entity.

(7) Other expense, net, includes expenses associated with non-routine corporate governance and shareholder matters and rent expense related to the new corporate headquarters, which is the amount of straight-line rent expense incurred from the date we gained the right to access to the facility for construction purposes prior to the date of occupancy in May 2014.

Riverbed®, The Digital Performance Company™, is united in our purpose of Advancing the Human Experience in the Digital World. Behind every digital experience is a human one, and Riverbed enables organizations to measure digital experiences and maximize digital performance so they can deliver better and more powerful human experiences— for customers, employees, partners, patients, and citizens. Riverbed’s Digital Performance Platform includes a combination of Digital Experience Management and Next-Generation Infrastructure solutions that ensure superior digital and user experiences, provides new levels of operational agility and accelerates business outcomes. Riverbed’s 30,000+ customers include 100% of the Forbes Global 100. Learn more at riverbed.com

Riverbed and any Riverbed product or service name or logo used herein are trademarks of Riverbed Technology, Inc. All other trademarks used herein belong to their respective owners.